Energy trader Vitol paying $6 million to settle charges of misleading exchange

Energy trader Vitol paying $6M in settlement

WASHINGTON — An energy trading firm has agreed to pay a $6 million fine to settle federal regulators’ charges of misleading an exchange by failing to disclose facts concerning its relationship with a subsidiary.

The Commodity Futures Trading Commission, which announced the settlement Tuesday, said the withholding of information by Houston-based Vitol Inc. and Vitol Capital Management Ltd. caused the New York Mercantile Exchange to fail to add their market positions together. Combining their positions would have put the firms over the exchange’s limits on the amount of future contracts that can be held by a firm at a given time, the CFTC said.

Vitol Inc. and its capital management subsidiary neither admitted nor denied the charges. Vitol Inc. is the U.S. subsidiary of Vitol SA, a privately held company based in Geneva, Switzerland, that is one of the world’s biggest energy traders.

Vitol trades energy commodities and engages in trading in energy futures and options on the NYMEX as a hedging strategy. Vitol Capital Management trades in energy derivatives as well as futures and options, according to the CFTC.

The two did their trading separately but shared market information and should have reported their market positions together, the agency said. They learned in June 2007 that the NYMEX had an inaccurate perception of their relationship, the CFTC alleged.

Rather than correct the perception, it said, the two put in only “limited barriers” to prevent the flow of trading information between them. They “willfully failed to disclose to the NYMEX the true nature of the firms’ relationship,” the CFTC said in a news release.

If related companies’ market positions are reported separately, exchange rules require that there be barriers to prevent trading information from moving between them.

The NYMEX didn’t add the two firms’ market positions to determine whether they fell within prescribed limits, designed to prevent excessive dominance and potential manipulation by powerful market players, until March 2009, the agency said.

“We are pleased to have reached a resolution to this matter on terms acceptable to all parties,” Vitol SA said in a statement. “Since 2007 we have put in place a new compliance organization, staffed by experienced compliance professionals, as well as the necessary processes and procedures.”

It was the third case of this type filed by the CFTC in the past year. The first settlement, with EMF Financial Products LLC, was for $4 million in November 2009. The second, with Morgan Stanley Capital Group Inc., was for $14 million last April.